Asia benefited from the afternoon bounce in the US markets, with all core performing across the board. The Hang Seng probably saw large cap’s perform on the back of a further gains made in the Yuan’s appreciation. Shanghai finished small down but again in extremely light summer volume. The Nikkei regained much of yesterdays loss but the yen is closing over 200 pips from its intraday 108.38 (Tuesday low), so there is more potential for Thursday especially following better than expected Retail Sales data but only if geopolitical events quieten down. The US reaction has been the quote that “All options are on the table” but there appears to be a general assumption that China should take the dominant role as its their neighbour. UK PM Theresa May arrived in Japan earlier today and also strongly condemned the North Korean action and also stressed that China should do more to stop these provocative actions.
Europe also recovered we all core closing around +0.5% better on the day. However, it is worth while we continue to highlight that volumes remain incredibly low and so can not rule out an extreme move as a result. Even though we saw Eurozone sentiment data better than forecast this proved insufficient to halt the reversal we saw in the Euro today -0.75%. GBP held-in in relation but also came under pressure towards the close of US trading.
Once again, it was left to the US exchanges to dictate market direction and speed. We did see initial weakness (reflected in futures) but cash was driven by the earlier ADP release. Expected at +185k the market took the hint as a +237k number took stocks better while fixed-income reshaped the front end of the curve. Of course, we shall all be focusing on Fridays Non-Farm Payrolls number but lets see everyone adjust their forecast following today ADP. The tech sector led today rally with NASDAQ closing 1% better on the day. Even with the US markets setting speed and direction for global exchanges, volumes are a fraction of even summer months. It is possible to see large moves because many main players remain on the side-lines.
2’s closed 1.33 (+1bp), 10’s 2.13% (u/c), 30’s 2.74% (u/c), Bunds 0.36% (+2bp) closes the US/Germany spread at +177bp. France 0.67% (+2bp), Italy 2.07% (+2bp), Greece 5.42% (u/c), Turkey 10.33% (u/c), Portugal 2.81% (+2bp) and Gilts 1.03% (+3bp).